(The Center Square) – Farmers are working to head off a change in federal estate tax policy that would lower the exclusion rate and possibly take farmland out of generational hands.
The current federal estate tax is a tax of up to 40% on estate assets valued at more than $11.7 million. In 2026, the Tax Cuts and Jobs Act provision expires, and the exclusion rate will be lowered to $5 million.
In response to the potential changes, U.S. Sen. Roger Marshall, R-Kansas, is promoting the Death Tax Repeal Act of 2021, hoping to ensure that more farms are able to be passed down family lines.
"KLA opposes the estate tax because it poses a significant barrier to transitioning an ongoing farm to the next generation," Aaron Popelka, vice president of legal and governmental affairs at Kansas Livestock Association, told The Center Square. "Land and equipment are purchased with after-tax income. Taxing an estate at death is tantamount to double taxation."
If an estate does not have sufficient funds to pay the 40% levy on assets over the exclusion amount, a farm will be forced to sell land or equipment until the tax debt is satisfied, Popelka said.
"This can cripple or completely destroy the ability of the next generation to continue an ongoing farm or ranch operation," Popelka said. "Land prices can vary greatly by region, but even the current exclusion can affect average farms. Certainly, the lower exclusion level set to go into effect in 2026 will impact many farms and ranches."
Popelka said another concern of KLA are proposals from Congress to not only allow the higher estate tax exclusions to expire but also repeal stepped-up basis for estate assets at death and deem any transfer at death to be a sale of the assets. Not only would the fair market value of estate assets be taxed by the 40% estate tax, but all assets subject to a bequest would be taxed on the gain in value from when the asset was purchased until the time of death.
"Should the federal government decide to practice fiscal responsibility and balance its budget, KLA would suggest finding ways to reduce spending rather than assessing a tax on assets acquired with after-tax income that can destroy family farm operations," Popelka said.